Introduction to the foundation and
practice of appropriate economics
by Stephen DeMeulenaere
© 2003
“Local production from local resources
for local use.”
E.F. Schumacher
Good Work, 1979
Since the publication of “Small
is Beautiful” by E.F. Schumacher in 1973, his presentation of
the need for an intermediate and appropriate technology has grown
to become a significant movement in development worldwide. Although
his calls for an appropriate application of economics in development
were equally revolutionary and realistic, only rarely have we
seen them put into practice. Many microfinance programs still
rely on external loans from big banks at high rates of interest
rather than developing the capital from within through a program
which encourages borrowers to also save their money. Many economic
and technological development programs follow models of economic
development that are inappropriate to their particular situation.
Some economists have begun to
realize that resources are not being allocated properly. Herman
Daly and Joseph Stiglitz, both former heads of the World Bank,
have outlined[1] the destructive effects of the present economic
system on cultures and environments around the world. Many join
them in criticizing the negative impacts of economic globalization
and the subjugation of third world economies to the global marketplace. Other
renowned economists such as J.K. Galbraith along with philosophers
Fritjof Capra and E.F. Schumacher show great concern for the
impacts of economics on people, environment and culture. Meanwhile,
all major religions have expressed their concern, in the strongest
terms, about the effects of an interest-based economic system
on a harmonious way of life, calling for the inclusion of values
and ethics in economics, and their opposition to the charging
of interest and usury in moneylending. It sounds good, but how
do we put it into practice?
We have heard it many times already
that some 1.3 billion people live on less than 1 US dollar a
day, and many survive on no monetary income at all. This over-simplification
of the issue of monetary poverty obscures many important questions. How
do people get what they need without money? Can we get what
we need without having to first have money? Is the lack of day-to-day
pocket money the real problem, or is it a lack of access to capital,
a lack caused by dependence on external money and the charging
of interest on access to it which limits its supply? Are mega-projects
the only way to bring large amounts of capital into a low-income
country? Is displaying the poverty and weakness of a country
the only way to gain the charity of a richer country? Are agriculture
and natural resources exports the only way for a low-income country
to earn foreign investment and capital?
To this, those working towards
an Appropriate Economics say no in response to these questions,
and demonstrate this by presenting a viable working alternative. Already,
more than 7 million people earn part or all of their income in
forms of money that do not include the national currency, in
more than 35 countries worldwide[2], and many millions more meet their basic needs
through social cooperation and reciprocation.
In the past two decades, this
grassroots social and economic movement, which some call a movement
for Socio-Economic Solidarity, People’s Economy or Solidarity
Economy, which we group under the term “Appropriate Economics”
has focused itself on decentralizing economic systems to the
local level and using proper processes to include the entire
community in economic planning, to put the economy back into
the hands of the people. Economies such as these that facilitate
“local production from local resources for local use”, and extend
it to include “through participatory processes using local knowledge
based on local cultures using local forms of exchange” are what
we mean by Appropriate Economic systems. This may be fine for
a starting definition, but what makes this kind of economics appropriate?
To say that something is “appropriate”
is to make a value judgement. Therefore values, which are the
expression of what people people consider important and essential
to them and ethics, which are the practical application of values,
are intrinsic to anything that can be called “appropriate”. In
terms of values, economic systems must be connected to the places,
environments, societies, cultures and impacts of its application, and
the process for assessing what is appropriate must respect these
elements. In terms of ethics, the process of actively engaging
the community in the conceptualization, design and realization
of an economy which provides each person with enough, what
Herman Daly calls “satisficing” through the combination of the
words ‘sufficient’ and ‘satisfied’, is the application
of an appropriate economic process.
Forming an economic network in
which all are included, which has both values and ethics embedded
in the core concept makes it possible to devise systems which
work towards economic solutions to social and environmental challenges. Appropriate
economics is therefore a process of applying broad-based community
determined values through an ethical system that has an impact
on the economic lives of people. Unlike conventional economic
thinking which divorces social concerns from economic thinking,
appropriate economics sees economic relations fundamentally as
social relations. It provides a means for people to relate economically
with each other as they would want to relate with each other
socially. In this way, money is seen as media, a form of communication
between people. One can use money that talks down to people, or
one can use money that speaks on even terms with people.
Such systems naturally encourage
cooperation, which means sharing and
working together at the same time, and reciprocation, which means
taking turns sharing and working together over time. In addition,
these networks must encourage both self-reliance, which means
helping oneself and one’s kin, as well as mutual aid, which means
helping people that we do not personally know. These four elements
are the foundation of social interdependence and socio-economic
solidarity. The identification of local human and natural assets
in improving the local economy helps local resources to meet
local needs, building social capital and socio-economic solidarity
in the process by narrowing the gap between those who have more
than they need and those whose needs go unmet, to ensure that
everyone has enough.
Appropriate economics means a
decentralized, bottom-up process, and must therefore be founded
on a wide variety of local assets. This includes community input,
choice, and collaboration, in the identification of issues that
concern the community most. By encouraging community participation
in identifying social and economic issues and setting goals,
people come back to the center of the economy again, which is
why in Asia the movement for an appropriate economics is called a People’s Economy
movement. Starting from the bottom level, it is possible to
design systems which achieve the social, economic and environmental
goals of the community. When people’s needs are met at the local
level, the regional and national economies are also likely to
be much stronger.
An Appropriate Economic system
is not alien to the local culture, rather
it must be founded upon these cultures and traditions. It is
important to know how previous generations of people traded or
cooperated with each other in designing an economic system that
is appropriate and sustainable as it will be founded upon local
assets and therefore what is familiar to people. In this way,
local culture and identity are strengthened through economic
cooperation and reciprocation, and not discarded and abandoned
in the push to join the global economic system.
Appropriate Economic systems must
originate at the local level and ensure that, at the household
level, every family’s needs are met. Economist Kenneth Boulding
states[3] that the ‘household economy’ is the main driving
force behind the market economy. More hours of work are done, more trade goes on at the household and local level,
factoring in favors and women’s work, than at any other level
of the economy. Only when a community feels its needs are taken
care of should it seek to develop products for export to other
local areas, or beyond to include regional, national or international
levels. In this way, a national economy can be both sustainable
and strong, and not rely on export-driven profits to pay for
the weak foundations of the economy in the rural agricultural
sector.
Appropriate economic systems must
be transparent in financial management and make information available
to the community. If the community does not know what is happening
in the local economy, how can they have a proper say in the direction
the economy is going, and should go? Most Credit Unions worldwide
have already institutionalized this practice of presenting their
monthly reports to the public, all appropriate economic systems do the same. Research
must be conducted to establish benchmarks for progress and for
setting attainable goals, as well as to build understanding of
the system and its impacts.
Appropriate economic systems often
use a special local medium of exchange to facilitate reciprocation
among people, or a system for accounting exchanges made between
people to encourage relative equality and fairness by accounting
for an individual’s contribution to cooperative, volunteer and
civic participation efforts. Sometimes a coupon or voucher is
used to track contributions over time and encourage exchange
between people, other times the amount received is recorded on
a ledger sheet and balanced periodically. As these systems are
founded upon individual abilities and local assets, this economy
is much more reflective of reality. This is to ensure equality
in contribution according to people’s abilities and to reduce
the mentality of charity and the free-rider syndrome, which does
not encourage people to take the responsibility for changing
their situation into their own hands but rather to wait for a
hand-out or a free ride, and is indicative of the extent of inequality
between people, the hoarding of opportunities and benefits, and
an unnatural justifcation of a social system founded upon excessive
social stratification and hierarchy.
By incorporating social and environmental
concerns within an economic model, Appropriate Economic systems
are much more likely to be sustainable, steady-state economic
systems[4]. A steady-state system is one which seeks to
reduce external inputs on the one hand and discharging of waste
on the other to achieve a balance in local production using local
resources to meet local needs in a way that is sustainable. Whereas
the conventional economic system will grow continually until
there is a crash or until natural resources have been exhausted
to pay for this growth, a steady-state system can continue developing
naturally forever.
To be a steady-state economic
system, the charging of interest on debts which go to a private
party, whether bank or individual, must be eliminated. This
allows for the charging of a “community tax” to develop a pool
of capital for interest-free loans. The charging of interest
on debt is the motor that drives unsustainable growth, therefore
ending interest-based debt is the key to a sustainable economy. An
appropriate economic system charges fees in ways to reduce socio-economic
stratification while ensuring access to these services. This
means that charging according to use is often a fairer method
of recovering the cost of operating the system, as the burden
of paying the system is moved from those with limited access
to money and capital, to those who employ large amounts of money
and capital in the economy. In the conventional economic system,
it is easy to see that those with limited access to capital pay
a larger share of the burden of interest. Moving to the international
scale, countries which have limited access to capital pay interest
rates of around 20-25%, whereas those with easier access to capital
pay much lower interest, in the area of 5-9% per year. As long
as this gap continues, poor countries must rely on extractions
of natural wealth for their income as they cannot compete in
manufacturing and other capital-driven sectors of the economy,
and generally rely on foreign companies opening up subsidiaries
within their country.
All of this does not mean that
there is no role for organizations from the wealthy countries
to assist the less-wealthy countries. In addition to providing
low-interest capital and access to their markets, the job of
a good development organization is to supply a community with
information on a level that they can understand, giving them
the tools to define needs and solutions on their own, through
a proces of consultation and collaboration. The community decides
what is appropriate for them and the two collaborate to create
and implement an economic system that best meets those needs.
Appropriate economics therefore
is not a utopian system or an “off-the-shelf” solution to all
the challenges faced by the community. It is not possible to
bypass processes of learning and experiencing and stages of development
to lead a community to what some people think is the best economic
system for them. It is simply not possible to impose or transfer
an economic model from one area to another area without following
the same process that led to the creation of the model in the
first place. If two communities are thinking the same thing,
the system can transfer from one place to another, but both communities
need to consider for themselves why that system is best for them
first. In this way, appropriate economic systems are founded
upon local realities and strengthened by best practices from
similar cases.
Drawing from culture and traditions
but adapted to modern realities and in consideration of best
practices from other places, appropriate economic systems adopt
what is best without pledging allegiance to any particular ideology,
religion or body of knowledge, instead using these elements as
a toolbox in designing a solution for each community.
An Appropriate Economic system
engages the community to discuss issues and design community-based
socio-economic networks founded upon local assets that embed
community-determined values and encourage the behaviours of cooperation
and reciprocation, self-reliance and mutual aid that build economic
solidarity between people while revitalizing cultural identity. By
following proper process in establishing a stable, sustainable
economy at the local level, founded upon local production using
local resources to meet local needs before seeking external trade,
appropriate economic systems lay the foundation for a social
harmony, rural reconstruction and a future of sustainable abundance
for all.
References
Daly, Herman. Steady-State
Economics. 2nd Edition. Washington, DC, Island Press. 1991.
Daly, Herman. Beyond Growth:
The Economics of Sustainable Development. Beacon Press, Boston. 1996.
Lietaer, Bernard. The
Future of Money. Century Press, London. 2001.
Van Arkel, Henk & Ramada,
Camilo. Poor Because of Money. Strohalm
Foundation, Utrecht. 2001.
Footnotes